CFPB issued 11th-hour lender redlining settlement

The Consumer Financial Protection Bureau published a proposed consent order against a defunct lender based on alleged discrimination late on Jan. 17 in one of its final releases ahead of the inauguration of President Trump. The company involved said the settlement was finalized that day.

The order was positioned to resolve allegations of Equal Credit Opportunity Act violations and subject Draper and Kramer Mortgage Corp. to a $1.5 million civil money penalty. It also banned the company from nonbank home lending for five years.

A spokesperson for DKMC called the bureau's allegations that the company violated the Equal Credit Opportunity Act by avoiding marketing to areas with either majority or large Black and Hispanic populations "meritless," and based on comparisons to undisclosed competitors in ways that "manufacture the perception of discriminatory conduct."

"Draper and Kramer Mortgage Corp. has never engaged in any form of redlining activity," the spokesperson said in an email.

"We emphatically deny the CFPB's claims and as the CFPB acknowledged, had already ceased operations in the residential mortgage-lending industry one year ago to pursue alternative lines of business as part of a strategic decision unrelated to these claims," the spokesperson added.

The settlement was finalized on Jan. 17, "to expedite the resolution of this matter and avoid protracted defense costs," according to the company's representative.

"We consider the matter closed," the spokesperson said.

The CFPB had asserted that the company "generated disproportionately low numbers of mortgage loan applications and mortgage loans from majority-Black and Hispanic neighborhoods in the Chicago and Boston MSAs."

The alleged home mortgage violations date back to a period between 2019 and 2021.

During this period, the CFPB claimed the company's peers "generated mortgage applications for properties in high-Black and Hispanic areas in the Chicago MSA at over five times the rate that DKMC generated such applications." 

In the Boston MSA, 0.43% of the company's 9,399 applications that were reportable under the Home Mortgage Disclosure Act for one- to four-family, owner-occupied properties went to properties in high-Black and Hispanic census tracts compared to 1.8% for its peers.

The CFPB furthermore alleges the existence of emails from at least two loan officers "containing racist content or otherwise reflecting discriminatory animus."

The proposed order directs the company to notify the bureau of compliance-related developments that include merger and acquisition activity or a successor firm's creation.

The Chicago area-based Draper and Kramer was going to sell some of its single-family mortgage operations and staff to New American Funding in February of last year but NAF said it ultimately decided not to proceed with the acquisition. The company discontinued its home mortgage lending operations last year, according to the bureau's complaint.

"We do not have any comment related to the CFPB action being taken," NAF said in an emailed statement.

Synergy One confirmed some Draper and Kramer branches in Ohio, Alabama, Texas and Louisiana opted to join it while the NAF acquisition was pending.

"We are not aware of any of the details of the enforcement action by the CFPB against Draper and Kramer and therefore, have no comment," Synergy One said in an emailed statement.

A federal pullback in regulation is anticipated under the Trump administration, but other government regulators have been more active recently.

"An increasing number of states have either enacted or are considering enacting legislation requiring financial institutions to provide persons … not ordinarily protected by the federal antidiscrimination states with fair access," law firm Ballard Spahr noted in a report last fall.